No quick end to the coronavirus shock in Germany

At the beginning of March, the proportion of companies which expected severe adverse effects was only 23 per cent. With the closure of schools and other lockdown measures in the 12th calendar week, the proportion of companies expecting strong short-term economic impact in the spring and summer of 2020 shot up to over 70 percent. This percentage dropped slightly in the 13th calendar week. Up to and including the 16th calendar week, the proportion of companies that were severely affected was consistently 62 to 63 percent of those surveyed. A third of companies expected a weak impact. Only between 3 and 4 percent of the companies anticipated there being no impact on their business as a result of the coronavirus pandemic. In the 17th calendar week, the proportion of badly affected companies dropped temporarily to 56 percent. This could possibly be interpreted in the context of the easing of restrictions at that time. This drop was attributable to service providers in particular. However, a clear rise in the fever curve to almost two thirds of companies was observed again in the 18th and 19th calendar week.

Coronavirus crisis casts a long shadow

In contrast to the financial market crisis of 2009, the impact on industry and service providers has been equally severe right from the start (for more details see Bardt/Grömling, 2020). When the questionnaire for the IW business survey was being drafted in mid-February 2020, it was presumed that there might be varying estimates of the duration of the impact from the coronavirus pandemic. For this reason, a distinction was made between short-term and medium-term impact. The short term refers to spring/summer 2020 and the medium term to 2020 and 2021. Experience regarding the duration of previous recovery phases was taken into account. In the case of the financial market crisis of 2009, it took industry and the overall economy until 2011 to recover to pre-crisis levels.

The figure shows no significant differentiation over the entire survey period between the short and medium-term outlook as a result of the coronavirus pandemic for the overall economy, i.e. the weighted aggregation of industry, service companies and the construction industry. Differences were observed only in the 12th and 16th calendar weeks. This high degree of alignment between assessments for the short and medium term currently suggests that the coronavirus crisis may cast a longer economic shadow than initially expected. This can be interpreted as an indication that the recovery period after the visibly severe impact in the second quarter of 2020 does not only refer to the next quarter, but may require several quarters, as has been the case in previous economic crises.

These findings are based on weekly estimates. The explicit aim of the weekly evaluation of the IW economic survey is to observe any changes in companies’ assessments. Naturally, this also applies to the time-related effects of the coronavirus pandemic. Even though the crisis arose quickly, it will not recede so fast. The exit process from the lockdown (for suggestions see Hüther/Bardt, 2020) will be lengthy and gradual. Even if restrictions can be eased on the supply side in Germany, difficulties in international value chains and recessions in export regions will persist. Domestic demand is also fraught with uncertainty. In any event, companies in Germany are not expecting the crisis to be a short-term phenomenon.